Poverty Can Be An Advantage

Do you believe that the world economic system is biased against the poor countries and in favour of the rich? Then listen to the latest IMF estimate that the seven richest countries (G-7) will grow much more slowly than third world countries of Asia in 1993. This trend has already been evident for a decade, Economic growth in the G-7 will be a niggardly 2 per cent in 1993, not much better than the 1.4 percent estimated for 1992.

By contrast, the Indian economy may grow by 5 per cent in 1993. Dynamic Asian countries like China, Thailand Indonesia, Malyasia, Korea and Taiwan, will grow rapidly, by 6 to 10 per cent. Even Pakistan and Bangladesh are expected to grow at around 5 per cent. So at a time when the rich are in serious trouble, the developing countries of Asia are doing quite well.

According to conventional wisdom the rich countries are the locomotive of global growth, pulling along the poor through the trade link. Clearly this has ceased to be true of Asia, which has decoupled itself from the G-7 . The transformation owes much to the switching of Asian countries form commodity exports to manufactured exports, a switch which Africa has yet to make.

It is not difficult to draw up a long list of ways in which the global economic system is biased against poor countries. They suffer from inferior access to capital and technology. They face protectionist hurdles, especially in products like textiles where they are most competitive. They have inferior infrastructure and skills. How then is Asia emerging as the global dynamo?

NEW SITUATION: The answer seems to be that the globalisation of the world economy has created a new situation where poor countries find that poverty has become a positive advantage provided they do two things. First, they must develop a reasonable level of skills, even if this is well below G-7 levels. Second, they must become outward looking, and find ways to plug themselves into the global economy (instead of seeking self-sufficiency).

Provided they satisfy these two conditions, global capital and technology will pour into those countries to take advantage of its cheap labour. No longer are multinationals interested in investing only at home, or even in following the political predilections of their home country. They will go where the combination of skills, infrastructure, organisational structure and wages are optimal. American investment is pouting into Vietnam today for no other reason than that it has cheap labour.

In this global milieu, the poorer a country, the greater will be the advantage it has on account of low labour costs. Thus poverty, historically seen as a grave disadvantage, can actually become an advantage in a globalised economy.

This does not mean the poor will automatically inherit the earth. It is not easy to develop skills or create stable organisational structures. Africa has failed to develop skills, especially organisational skills, and so lags behind. Organisational skills include the ability to run politics and society on a reasonably stable basis. The civil wars of Africa have made it impossible to provide functioning organisational structures in many countries.

INDIAN WORKERS: What about India? In creating skills, India has done well. Indian engineers , computer experts and managers boast much better skills than their equivalents in Thailand or Indonesia, and even in South Korea (in some fields) . Yet India remains much poorer than lower-tech countries. The reason is that its policies have made it impossible to harness these skills fully.

Governmental policies have for four decades discriminated against external linkages in the form of exports and foreign investment. Labour laws have converted what should be cheap labour into high cost labour.

Some people blame democracy, which leads to the cultivation of vote banks, and can never be as systematic in the pursuit of productivity as authoritarian regimes. But democracy yields civil rights which are vital though intangible goods that consumers want.

Given the current political climate, it is doubtful if we will have an overhaul of labour laws to enable globally-linked investors to take full advantage of low wages. And the Ayodhya affair plus rising terrorism in several states suggests that India’s organisation structure is under threat.

The silver lining is that the new economic reforms have finally ended the animus against foreign trade and foreign investment. India is at least becoming linked to the global economy, however haltingly. It will continue to fail on many fronts, and hence fail. Fortunately, by plugging into the global system, it ensures that any failure in direct poverty alleviation will translate into some limited advantage in exports, so that poverty-correction is build automatically into our system. Taiwan banished poverty not through doles and subsides but by harnessing labour for exports India needs to learn form this.